Do you already have a loyalty program but are considering a premium loyalty tier?
Here’s the good news. Free loyalty programs and paid loyalty programs are not mutually exclusive. Both can, in fact, coexist beautifully. Here’s why.
The Problem with Free Loyalty Programs
Most traditional loyalty programs are the same. Transactions first, benefits later. One size fits all. So, while brands may get a lot of customers to join, not much happens after that.
Loyalty is based on relationships, and truly listening to your customers is the path toward brand enlightenment. Only when you truly hear what your customers are saying can you create a benefits structure that provides real value to them.
With a free loyalty program, the barrier to entry is low so it’s easier to acquire a higher volume of members. Free programs, however, tend to be structured on an earn-and-burn model, which means that members need to achieve certain spend levels for the rewards to be meaningful.
Free loyalty programs are by design great at getting lots of signups because of that low barrier to entry for consumers. The problem is the value. They fail to provide a rich mix of benefits that drive true emotional engagement among members.
For example, a $5 reward after you spend $100 is typical in free programs. But, a premium tier can offer the opportunity for a member to buy-in to elevated benefits immediately.
Adding a premium loyalty tier can transform a run of the mill free loyalty program into an inviting and engaging loyalty program.
Elevated Benefits from a Premium Loyalty Tier
Elevated benefits fill the calling card of any premium loyalty program.
A premium loyalty tier allows a brand to offer benefits that extend beyond typical transactional incentives. These benefits can take many forms, including convenience perks such as free shipping and returns.
Another perk that adds value in a premium loyalty tier is a member-only exclusive. Member-only exclusives can be products that are not widely available, or first access to sales, or even curated content.
For example, GameStop offers a Game Informer magazine to its premium tier PowerUp Rewards members. Philanthropy enters the elevated benefits conversation as well in the form of incentives for donations. A fitting example of this is DSW’s Give A Pair benefit.
It’s all about including customers at all engagement levels.
Casual customers that are only interested in signing up for a free program might not care about elevated benefits, but your best customers will. And once customers are in the free program, it becomes easier to convert them to premium loyalty program members.
Therein lies the beauty of combining the two types of programs.
Premium Loyalty and Traditional Loyalty Working in Harmony
A premium loyalty program targets your best customers. These are the customers that already shop your brand more frequently than the casual consumer. That’s part of the reason they’re willing to sign up for a paid program in the first place. The goal is to get them engaging even more and really maximizing lifetime value.
That means 80% of your customers may not be willing to sign up for a paid loyalty program. But chances are they’ll readily enroll in a free one because of the low barrier to entry.
On the other hand, the top 20% of your customer would be happy to sign up for a paid program (if it offered them enough value), but a free program might not give them the benefits they’re looking for (i.e. having to spend $100 to get a $5 reward).
By combining the two and offering a free and paid tier, you’re hitting most of your customer base and members can move between the two depending on their needs.
If a member downgrades from the premium loyalty program to the free tier, they’re still moving within the overall program and not dropping out completely. If a free member is interested in joining the paid program because of the demonstrated value, it’s easier to convert them than a cold customer.
Either way, your brand stays top of mind. This makes it easier to move customers towards the top tier.
Real Examples of Success with Tiered Loyalty Programs
AMC Theaters, which has one of the best known paid loyalty programs, Stubs Premier, launched a free tier of Stubs in Q2 2016.
Just two months after launch, 1.2 million more households had signed up. Adding the free program, which encourages more signups, also provides AMC with a much larger member database and insight on their preferences.
It’s also easier to demonstrate the value of the paid tier to existing free tier members than it is to try to get joins for altogether non-members. Even if a paid member downgrades to the free program, they are still in the Stubs ecosystem, making an upgrade to premium easier in the future.
Lids has also seen success with its tiered loyalty program approach.
In March 2017, Lids launched the Access Pass loyalty program, which has two tiers: Access Pass is free while Access Pass Premium costs $5 per year.
The program has found considerable success, with its members comprising more than 30% of top line sales according to Jeff Pearson, Senior Vice President, E-commerce & Marketing at Lids Sports Group. Membership has doubled in the last year.
Free Loyalty with a Paid Tier: The Best of Both Worlds
One of the best things about offering a premium tier as an upgrade to a free program is that you already have a built-in base of free program members.
In addition to being a prime pool of candidates to promote the premium program to, they can be an excellent source of feedback on which premium features are compelling and which are not.
By adding a paid tier to your free loyalty program, your brand truly gets the best of both worlds.